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Herbalife Takes On Pershing's 'Myth,' Ackman Not Backing Down

Herbalife counts athletes like Lionel Messi among the endorsers of its nutrition pockets, but the latest action in the company’s stock price looks a lot more like ping pong than soccer.

Shares swung between gains and losses after Chairman and CEO Michael Johnson led a presentation mean to debunk the short case presented by hedge fund Bill Ackman in December. The driving point from the company: Ackman is intentionally distorting the facts about the company’s business to suit his own purposes.

Ackman’s December presentation laying out an exhaustive case for shorting the company’s stock, amounts to “doubts being raised by a gentleman who has an economic interest in seeing our company not perform,” Johnson said Thursday.

Pershing Square, Ackman’s hedge fund, claims Herbalife is a pyramid scheme, with distributors compensated not for selling the company’s nutritional supplements but for how many new recruits they can bring into the scheme. The company says that is not the case, and that Ackman not only cherrypicked data, he made outright mispresentations of the company’s financial statements.

Herbalife also hired Lieberman Research Worldwide to conduct a survey aimed at quantifying brand awareness and how much of the company’s sales occur outside its network of distributors. The company’s survey of 2,000 people found that 5% of U.S. households reported purchasing the company’s products, with 90% of sales coming externally.

For his part, the hedge fund manager is not backing down. In a statement Thursday he said Herbalife “distorted, mischaracterized, and outright ignored large portions of our presentation,” specifically “our identification of overstatements and inaccuracies in the company’s earnings statement for distributors, which among other deceptions, excludes the 93% of distributors that have zero gross earnings.”

Pershing, Ackman said, will release a detailed series of questions for Herbalife and respond in detail to the defense mounted by the company Thursday, promising updates to the website launched in December, factsaboutherbalife.com. (Herbalife’s webcast and presentation are available on its investor relations page here.)

Johnson and his management team are not only ones taking aim at Ackman’s short case. Rival hedge fund manager Daniel Loeb revealed an 8.2% stake in the company Wednesday — and said in his quarterly letter to Third Point investors that the pyramid scheme short case is ‘preposterous’ — and Carl Icahn is also said to be long the stock.

While a spat over a relatively small company may get short shrift outside of financial circles — many investors are probably far more concerned with how Apple is doing or whether the U.S. can get its fiscal house in order — segments of Herbalife’s presentation Thursday seeemed to be aimed at Main Street.

The company showed videos of distributor-run nutrition clubs, which Ackman unfairly belittled in his December presentation as far as Herbalife President Desmond Walsh is concerned. “This doesn’t look like a country club in Westchester or Connecticut…but this is the real America,” Walsh said.

The clubs the company included showcased a vibrant community of Herbalife enthusiasts, a stark contrast from the still pictures in Ackman’s presentation, which made the nutrition clubs look more like rundown methadone clinics than hotspots for healthy living.

Later, during the question and answer session, Walsh took another populist shot, saying that making $250 a month selling Herbalife’s products might fall into the category of “nobody making any money” to a wealthy hedge fund manager like Ackman, but could mean a larger living space or a vacation for the company’s distributors.

Herbalife’s stock, which raced into and out of positive territory Thursday, finished the session in the red, down 1.8% at $39.24. Some of that may have been a give-back after the 4.2% advance Wednesday when Loeb joined the fray, but the stock is still above where it closed the day of Ackman’s presentation.

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